Appelmann talks Stock

February 10, 2008

When Joe Appelmann took over the reins of Stock Building Supply from Fenton Hord, who retired in 2007, Appelmann made the following observation to his former boss: “You’ve had 20 years to train me. I hope you did a good job.”

A lot is riding on the shoulders of the new leader—including ambitious growth plans in a certifiably lazy housing market. That means it’s time to think a new, something the company is doing more and more and in increasingly close cooperation with sister company Ferguson. Appelmann, a CPA by trade, started his Stock run when the chain operated only seven units, under the Carolina banner. Along with 20 years building material experience and a finance background, Appelmann brings a level-headed optimism to his role as chief of Stock.

“This is the ninth housing market downturn since World War II,” he said. “There will be a tenth.”

The matter at hand, he explained, is to manage the business through the current market, through the inevitable upturn, and the downturn on the distant horizon.

Home Channel News caught up with the Stock president at Wolseley North America headquarters in Newport News, Va.

Home Channel News: We’ve heard a lot about diversification at Wolsely North America—what does that mean to a traditional pro dealer like Stock?

Joe Appelmann: When we talk about diversification at Stock, it’s really two things: product diversification and standardization in our residential business, which is the largest business we are in and will account for 80 percent of our sales. New residential construction is going to continue to be in our DNA. The residential piece is the core of what Stock does. It’s this management team’s responsibility to make sure that we’re not overly impacted during this downturn. And to do that, we grow the business.

HCN: Growth in a down market?

Appelmann: Wolseley has always been about growth. Stock has doubled the business every four and a half years, and we have to continue to double the business every four and a half years. We’re going to do that not just in residential—we have to be in non-residential construction business as well. That’s what the push into commercial is all about for us.

When you grow through acquisitions, you don’t look the same every where. That’s where our standardization piece comes in. We’ve got some markets where we don’t offer components today; we don’t offer installed sales services. We need to offer more consistent products and services in all of our markets.

HCN: A lot of the publicly traded companies plan to “hunker down” during the downturn. You’re describing just the opposite with diversification and growth.

Appelmann: That’s the right way to look at it. If you go back and look at Stock in 1988 through 1992, when Wolseley first acquired the company, we invested through the down cycle in acquisitions.

We were basically a North Carolina player back in the late ’80s and early ’90s, and Wolseley made a decision that they wanted a national foot print in residential, and they invested through the down cycle. It’s the same thing now. Wolseley is in our business for the long haul. And they invest in down cycles.

You’ve seen us make three acquisitions since the close of our fiscal year in July, including a framer in Albuquerque, N.M., and a couple of commercial acquisitions. You’ll see us continue to be busy on the acquisition front.

When you talk about hunkering down, you have to do the hard things—you have to do the reductions in force, you have to get your residential business sized correctly, but we still make investments. We’re investing in showrooms and adding jobs, and we tried to re deploy as many people as we can into those new initiatives as we made the hard decisions to reduce the work force.

HCN: You had significant lay offs recently. Will you replace those jobs in 2008 or 2009?

Appelmann: It depends on when the residential housing piece comes back. We continue to add jobs in commercial. In any market you have to be smart about this.

HCN: Speaking of the market, what are the metrics that you use to assess the economy?

Appelmann: You look at all the macro indicators. This is a very regionalized industry. And it really comes down to, does a region have good job creation and net import migration? If you look at a market like the Triangle (North Carolina), it has not been as affected by the housing downturn as Detroit. They are continuing to create jobs in the Triangle, continuing to see an influx of people, continuing to have demand for housing.

HCN: Looking ahead, do you see a product category that’s going to be a big seller?

Appelmann: If the housing market were to bounce back strong in 2008, I think you would see a great need for components and engineered solutions. Just to help builders get houses built. There’s been depletion in the work force. Should housing come back in ’08—which I’m pessimistic about—you’d see a big push in the engineered shell of the home. For us, if I had to pick a successful project, I think it would be our showroom concept—as we continue to invest in that, we’ll be very successful.

HCN: What markets a side from what you just mentioned do you think are holding up the best right now?

Appelmann: North Carolina has been pretty good. The inner mountain West has been good. And for us, Southern California has been actually pretty good, the Inland Empire excluded. The Midwest has done not quite as well.

HCN: Where do you see the biggest opportunities regionally?

Appelmann: I don’t want to tell you the markets I want to be in. (Laughs) We still have opportunities in the Carolinas, all the markets I mentioned before where we’re strong, and we’re committed to the Midwest. We’ve stayed in Indianapolis, Detroit and Minneapolis. Those markets might take some more time to come back, Detroit in particular. It was once one of our most profitable markets. Detroit will come back.

As I tell the folks in Detroit ‘You may not get it in residential, but you’re just starting in commercial. Just restarting your RMI. You can get growth in the market because you still have customers in that market building homes.’ We need to sell more of our products and services to them. There are opportunities inside of our existing customer base, there really are.

HCN: Can you talk about how Stock is re acting to the green movement?

Appelmann: Yeah, it depends on the area of the country you’re in. We’ve seen a lot of activity in Southern California. They seem to be more progressive than in some other areas of the country. I think we’ve seen a bigger push about energy efficiency in the homes, and I think we’re partnered with the right vendors to help deliver solutions for the customers. The green movement is much bigger in Europe, and we’ve got a lot of learning to do from our European sister companies.